The Endowus Private Markets & Hedge Funds Symposium witnessed an impressive turnout, with over 450 Verified Accredited Investors (VAI) registering to participate.
Investors eagerly engaged with expert speakers who provided valuable insights and discussed investment opportunities spanning hedge funds, private credit, private equity, and private real estate and infrastructure.
Here are some key takeaways from the inaugural symposium.
Opening by Endowus Co-founders
Gregory Van, Co-founder & CEO, Endowus
Samuel Rhee, Co-founder & Chairman, Endowus
- In 1985, David Swensen became the chief investment officer of a small university endowment at Yale with $1 billion. Over the next 36 years, until his passing in 2021, Swensen achieved an annual return of 13.7% growing the endowment to over $40 billion. If they had not spent anything, the initial $1 billion would have compounded to $100 billion.
- Endowus was founded with a mission to bring the Yale model of “endowment-style institutional investing to all of us”, providing institutional advice on fund selection, strategic asset allocation across multiple asset classes & globally best-in-class managers, and portfolio construction by a strong team of professionals with institutional experiences. This unique outsourced investment office or CIO service is what truly sets us apart in serving individuals and families in their wealth building.
- The company began by helping people invest better with their private wealth and pension (CPF & SRS in Singapore) savings and always had the aim to offer institutional curated access to private equity, private credit, hedge funds, and alternatives, through its conflict-free, independent advisory business model.
- Endowus’ business model and advisory framework guide clients consistently and systematically to investment solutions for their goals today, and as those goals may evolve in the future.
- Individuals, family offices, endowments, trusts, charities, and more can benefit from endowment-style evidence-based asset allocation, institutional access, total transparency and low fair fees.
Panel 1: Hedge Funds - Higher Returns or Just High Fees?
Gregory Van, Co-founder & CEO, Endowus (Moderator)
George Maltezos, Managing Director, Head of Alternative Specialists Team (AST), BlackRock
Thomas Cordier, Co-Head of Investor Relations, Quantedge
Mariana Paul, Investment Specialist - O'Connor, UBS Asset Management
- Investors use hedge funds for various purposes, including generating alpha, mitigating downside risk, and achieving diversification. Ultimately, investors need to be clear on their desired risk, return and liquidity profile, and then use hedge funds to best fulfil their overall portfolios’ objectives.
- A hedge fund or portfolio of hedge funds should not stand alone in an investor's portfolio. Rather, they should be integrated either as a part of their Core portfolios towards their specific strategic needs, or as Satellite portfolios that reflect their specific strategic views.
- Hedge funds employ complex investing strategies and generally come with higher fees. Therefore, investors should review the fees they are paying (and they should be disclosed), do their due diligence, and consider the value of the funds’ net returns to their portfolio. Questions to ask would be: 1) “Can another more traditional strategy replicate what the hedge fund manager is trying to do?” and 2) “Are the net returns (after all fees) likely to be a good addition to my portfolio?
- Many hedge funds typically fail due to poor risk management and governance. Managers who implement a repeatable investment process that is misaligned with their systematic edge or expertise may also find themselves struggling to manage risk and generate alpha across different market cycles. Having a sound risk management and governance framework, a repeatable investment process, and carefully applying leverage are some of the key factors in preventing hedge fund failures.
- If you are looking at hedge funds for your wealth, (1) understand how the expected risk-return-liquidity fits into your wealth goals, (2) ensure you find managers that have been tested through financial cycles, and (3) ensure the fund manager’s long-term incentives are aligned with their investors’ interests, including the fee structure.
Panel 2: Insights into Private Credit - Past the Peak or Only the Beginning?
Samuel Rhee, Co-founder & Chairman, Endowus (Moderator)
Ashish Jain, Managing Director, Wealth Management Solutions, Ares
Geoff Stockwell, Senior Managing Director, Credit, Blackstone
Tracy Lau, Managing Director, Carlyle
Shai-Wan Sai, Vice President, Client Relationship Management, Brookfield Oaktree Wealth Solutions
- Private credit has seen significant growth and evolution, with increasing popularity, innovation, and potential for higher returns and lower risk, compared to traditional fixed-income assets. Over the past around 15 years, private credit as an asset class has given an average annualised return of 9%, higher than other fixed-income asset classes.
- Private credit offers a source of stability, remaining relatively immune to the volatile nature of public markets and from geopolitical risks. From a diversification perspective, there’s a compelling reason to have private credit in an investor’s portfolio.
- A common misconception surrounding private credit is its perceived riskiness. However, this attribute is inherent to a relatively nascent asset class and can be dispelled through investor education. Private credit is not necessarily riskier than public credit, as long as you pick the right managers and with the right characteristics and covenants in place.
- There has been a shift in financing from traditional banks to alternative lenders, benefitting business owners and investors seeking smoother and safer returns. Notably, alternative lenders possess the capacity to offer a level of flexibility that traditional banks often find challenging to match.
- Over the next two years, challenges may arise in the lending space as borrowers have enjoyed easy access to funds in the past. This could create an opportunity in the opportunistic lending sector, although this constitutes a relatively small portion of the overall market.
- Anticipating slower global economic growth, with a consensus expectation of 2% growth in the S&P 500 index for the year, investors are advised to consider defensive assets due to the high interest rates (for instance, senior debt from great companies having a yield of 12% or 13%).
- While all speakers unanimously agreed that private credit is not currently in bubble territory, the sector has witnessed remarkable growth, reaching a substantial $1 trillion in market size. However, when compared to the historical size of banking sectors in various countries, private credit has room for further expansion before posing a systematic problem.
Panel 3: Decoding Private Equity Investments - Strategies and Challenges
Hugh Chung, Chief Investment Advisory Officer, Endowus (Moderator)
Hermann Rauch, Managing Director, EQT
Kerrine Koh, Managing Director, Head of SEA, Hamilton Lane
Martin Yung, Principal, Secondaries, HarbourVest
Henry Chui, Head of APAC Private Wealth, Partners Group
- Private equity has tended to outperform public equities in the long run, driven by its unique advantages, including broader access to a diverse range of companies and the ability to exert control over value creation. In the United States and Europe, for example, companies generating revenues upwards of $15-20 million are about 20 to 30 times more common in the private equity space than in the stock market. This abundance of opportunities in the private space gives managers greater flexibility in their selection process. Additionally, the private equity industry boasts a well-established model for driving value creation across a spectrum of companies.
- The value drivers of private equity can be categorised into three key factors. Firstly, operational value creation plays a pivotal role. Secondly, the strategic management of capital structure, particularly the use of debt, is important. Lastly, the valuation multiple at both entry and exit points is a crucial determinant of success.
- The big trend that's quite relevant for individual investors is the popularity of evergreen funds. They are flexible investment vehicles with no fixed end date compared to traditional private equity funds, which have a fixed lifespan. Investors can redeem or subscribe to the units on a monthly or quarterly basis, providing them with flexibility. Furthermore, these funds fully deploy an investor's capital from day one, allowing compounding to start immediately.
- For evergreen fund investing, careful consideration must be given to vintage year diversification. The term "vintage year" denotes the year in which the initial capital injection occurs. The performance of a fund is closely tied to both its vintage year and the corresponding phase of the business cycle. Diversifying across multiple vintage years not only enhances risk management but also contributes to the creation of natural liquidity within the portfolio.
Panel 4: Unlocking Success - Strategies for Private Real Estate and Infrastructure Investment
Sean Wong, Head of Investments, Endowus (Moderator)
Ambika Goel, Managing Director, Real Estate, Blackstone
Wilson Chung, Managing Director, Investment Management, DigitalBridge
Jeremy Chee, Principal, Private Real Estate, KKR
- Historically, adding private real estate to an investment portfolio has tended to increase income, improve returns, and reduce overall portfolio volatility over a longer time horizon. It is often complementary to investing in individual properties, where there could be a lack of diversification since it involves one asset in one location, giving rise to potential volatility and concentration risk.
- Publicly traded real estate investment trusts (REITs) are susceptible to frequent market fluctuations. Since 2010, there have been many more instances where public REITs experienced a significant 10% up or down move within a quarter. In contrast, the private real estate market has historically been relatively more stable. Additionally, public REITs only account for around 8% of the expansive $20+ trillion global real estate market, restricting investors' access to a limited pool of assets.
- The selection of a manager for a private real estate fund holds extreme importance. Opting for a manager with a robust corporate governance framework is crucial, especially in the face of an increasingly complex investment landscape, as they play a pivotal role in navigating the intricacies of the market effectively.
- The logistics sector stands out due to the burgeoning growth of e-commerce and the escalating demand for storage facilities for online retailers. With a low 4-5% vacancy rate and constrained supply in the logistics space, it presents an appealing investment opportunity.
- Another burgeoning sector is the data centre industry, fueled by the exponential rise in data creation over the past few years, especially with the proliferation of generative artificial intelligence (AI). The hospitality and residential sectors also warrant attention, driven by the post-Covid recovery and the expanding middle-class demographic.
Diversification, diversification, diversification
The recurring theme across all panels was the emphasis on "diversification." While traditional assets are more well-covered, ignoring the diversification potential of alternative investments is a missed opportunity.
Hedge funds, private credit, private equity, and private real estate and infrastructure not only provide diversification but also bring additional advantages, such as improving returns and lowering volatility and correlation.
Recognising and harnessing the potential of alternative investments can be instrumental in building a well-rounded and resilient portfolio.